• 11.6 Exempt food component

    The steps for calculating the exempt food component are outlined below:

    Step Action

    1

    Establish the food component

    2

    Subtract the applicable statutory food total from the food component.

    That is:

    Food component – applicable statutory food total.

    3

    From the amount calculated at step 2, determine how much of that amount was incurred by the employee on food and drink.

    4

    The exempt food component is so much of the result of step 3 that can be substantiated if required.

    Attention

    Where a family member incurs these expenses on behalf of the employee, that family member is considered to be acting as an agent of the employee and, therefore, the employee is still the person incurring those expenses.

    End of attention
    Attention

    The exempt food component does not include food expenses relating to any days during which the employee resumes living at his or her normal residence – this means that if you pay an allowance for food or drink for any days that the employee returns home, that part of the allowance for those days is fully taxable.

    End of attention

    Food component

    The food component in relation to a LAFHA fringe benefit is so much that might reasonably be concluded is compensation for expenses to be incurred by the employee for food or drink while the employee is living away from home. The expenses are for food or drink for both the employee and any eligible family members.

    Applicable statutory food total

    The applicable statutory food total is:

    • the sum (total) of the statutory food amounts of the employee and any eligible family members
    • less (minus)
    • any amount that might reasonably be expected to be the total normal food or drink expenses for eligible family members had they remained living in their normal residence during the period, and was taken into account by the employer in working out the food component.

    The applicable statutory food total cannot be below zero.

    The statutory food amount is $42 a week for each adult, and $21 a week for each child. (For this purpose, an adult is a person who had attained the age of 12 years before the beginning of the FBT year.)

    Attention

    The applicable statutory food total calculation reflects two alternative practices:

    • one where you may provide an allowance that is net of the statutory food amount to compensate employees only for additional food or drink expenses.
    • the other being where you provide an allowance that includes the statutory food amount to compensate employees for total food or drink expenses.
    End of attention

    Example:

    Allowance includes compensation for additional food costs

    An employee living away from their normal residence is paid a LAFHA of $933 per week. Of that allowance:

    • $700 is compensation for the cost of accommodation, which is fully spent by the employee on accommodation and is substantiated by the employee.
    • $233 represents compensation for the additional food costs only while living away from home. The employee declares that they have spent no more than the Commissioner’s reasonable food amount and, therefore, is not required to substantiate their expenditure.
    End of example

    In this example, the allowance includes compensation for additional food costs. The employer calculated the $233 food component by deducting $42 (estimated normal home food consumption costs) from the estimated food costs of $275.

    The taxable value is calculated as follows, because the substantiation requirements are met:

    Total allowance

    Less (minus):

     

    $933

    Exempt accommodation component
    and

    $700

     

    Exempt food component*

    $233

    $933

    Taxable value

     

    $0

    *In this case, the exempt food component is $233 - ($42 - $42).

    Because the food allowance is only for additional food costs, the exempt food component is $233. This amount is not required to be substantiated because it does not exceed the Commissioner’s reasonable amount for food and drink expenditure.

    Example:

    Allowance includes compensation for total food costs

    An employee living away from their normal residence is paid a LAFHA of $900. Of that allowance:

    • $500 is compensation for the cost of accommodation, which is fully spent by the employee on accommodation. The employee substantiates their accommodation expenditure.
    • $320 represents compensation for the total food costs while living away from home. This amount is more than the Commissioner’s reasonable food amount and the employee actually spends $260 on food. The employee substantiates their total food expenditure.
    • the remaining $80 is compensation for disadvantages associated with having to live apart from family and in a town without facilities that would normally be enjoyed at home.
    End of example

    The taxable value is calculated as follows, because the substantiation requirements are met:

    Total allowance

    Less (minus):

     

    $900

    Exempt accommodation component
    and

    $500

     

    Exempt food component*

    $260

    $760

    Taxable value

     

    $140

    *In this case, the exempt food component is $320 - ($42 - $0) = $278. However, because the employee only spent $260 (and this can be substantiated) this becomes the exempt food component.

    The taxable value is $80 paid for disadvantages suffered for living away from home + $60 food component that was not spent = $140.

    The $60 consists of the $42 statutory food amount plus the remaining $18 difference between the $278 - $260.

    Commissioner’s reasonable food amount

    The Commissioner will issue an annual taxation determination specifying the reasonable amount for food and drink expenses for future years. The Commissioner determines a reasonable amount for food and drink expenses incurred by the employee for which substantiation is not required.

    An employee is required to substantiate all the expenses incurred on food and drink if the total of those expenses incurred exceeds the amount the Commissioner considers reasonable.

    However, while the Commissioner will determine the amounts that are considered reasonable for the purposes of alleviating the requirement for an employee to substantiate expenses incurred on food and drink, the Commissioner does not determine if a LAFHA paid to an employee is reasonable or not.

    The amount paid as a LAFHA is a matter to be determined between you and your employee, having regard to appropriate matters, such as any industrial laws or requirements.

    Expenditure equal to or less than the Commissioner's reasonable food amount

    Where the employee incurs expenditure on food or drink that is equal to or less than the Commissioner’s reasonable food amount, no substantiation of the food or drink expenditure is required. Before paying a LAFHA which consists of a food component, you must be able to conclude that an employee will incur expenditure on food or drink. As a result, it is reasonable for you to be satisfied that there has been expenditure on food or drink up to the Commissioner's reasonable amount.

    This means that the Commissioner accepts that the employee has spent an amount equal to the lesser of either:

    • the food component (if it is less than the Commissioner’s reasonable food amount), or
    • the Commissioner’s reasonable food amount

    on food or drink for the purposes of this calculation where no substantiation is required.

    The effect of paying an allowance where the employee’s expenditure is equal to or less than the Commissioner’s reasonable food amount is outlined in the table below.

    If you pay an allowance that is.. And the expenditure incurred by the employee is equal to or less than the Commissioner’s reasonable food amount then..
    • for additional food costs, and is less than or equal to the Commissioner’s reasonable food amount
     
    • No substantiation is required.
    • The taxable value of the food component is nil.
     
    • for additional food costs and is more than the Commissioner’s reasonable food amount
     
    • No substantiation is required.
    • The taxable value is the difference between the allowance paid and the Commissioner’s reasonable food amount.
     
    • for total food costs and
    • equal to the total of the Commissioner’s reasonable food amount + an amount up to the statutory food total
     
    • No substantiation is required.
    • The taxable value of the allowance is the statutory food total.
     
    • for total food costs and
    • equal to the total of the Commissioner’s reasonable food amount plus an amount greater than the statutory food total
     
    • No substantiation is required.
    • The taxable value of the allowance will be at least the amount of the statutory food total.
     
    Further information

    See 11.11 of this document for more information on the record keeping requirements.

    The Commissioner has issued Taxation Determination TD 2013/4External Link about the reasonable amount for food or drink expenses which will apply from 1 April 2013.

    For the period from 1 October 2012 to 31 March 2013, you should apply the reasonable amounts detailed in Taxation Determination TD 2012/5External Link.

    End of further information

    Example:

    Allowance includes compensation for additional food costs and expenditure is less than Commissioner’s reasonable food amount

    An employee living away from their normal residence is paid a LAFHA of $630 per week. Of that allowance:

    • $350 is compensation for the cost of accommodation. This amount is fully spent by the employee on their accommodation and is substantiated by the employee.
    • $200 is compensation for the additional cost of food while away from home. The normal food costs of the employee were taken into account by the employer. This is less than the Commissioner’s reasonable food amount.
    • the remaining $80 is compensation for disadvantages associated with having to live apart from family and in a town without facilities that would normally be enjoyed at home.
    End of example

    The taxable value is calculated as follows, assuming the substantiation requirements for the accommodation component is met:

    Total allowance

    Less (minus):

     

    $630

    Exempt accommodation component
    and

    $350

     

    Exempt food component*

    $200

    $550

    Taxable value

     

    $80

    *Amount taken to be spent on food less (minus) statutory food amount – that is, $200 – ($42 - $42) = $200.

    Because the food component paid is $200, which is less than the Commissioner's reasonable food amount, the full amount of the food component is accepted as having been spent.

    The taxable value is:

    • $80 paid for disadvantages suffered for living away from home.
     

    Example:

    Allowance includes compensation for total food costs and expenditure is less than Commissioner’s reasonable food amount

    An employee living away from their normal residence is paid a LAFHA of $730 per week. Of that allowance:

    • $350 is compensation for the cost of accommodation. This amount is fully spent by the employee on their accommodation and is substantiated by the employee.
    • $300 is compensation for the total cost of food while away from home. The employee advises they have spent less than the Commissioner's reasonable food amount.
    • the remaining $80 is compensation for disadvantages associated with having to live apart from family and in a town without facilities that would normally be enjoyed at home.
    End of example

    The taxable value is calculated as follows, because the substantiation requirements for the accommodation component are met and where the Commissioner's reasonable food amount is $233:

    Total allowance

    Less (minus):

     

    $730

    Exempt accommodation component
    and

    $350

     

    Exempt food component*

    $233

    $583

    Taxable value

     

    $147

    *Food component – applicable statutory food total, that is $300 - ($42 - $0) = $258. Because there is no substantiation required because the amount spent by the employee is less than the Commissioner's reasonable food amount, the exempt food component is accepted as being the Commissioner's reasonable food amount of $233.

    The taxable value is:

    • $80 paid for disadvantages suffered for living away from home
    • $67 being the $42 statutory food total plus the $25 (that is, $258 - $233) that was not included in the exempt food component (as substantiation was not required because the employee spent less than the Commissioner's reasonable food amount on food and drink).
     
      Last modified: 23 Aug 2013QC 17825